United States v. Fior D'Italia, Inc., 536 U.S. 238, 2 (2002)

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Cite as: 536 U. S. 238 (2002)


reported. However, 3121(q) is a definitional section. Sections 3111(a) and (b), which impose the tax, speak in the plural—"wages" paid to "individuals" by the employer "with respect to employment"—and thus impose liability for the totality of the "wages" paid, which totality, says the definitional section, includes each individual employee's tips. Pp. 244-245.

(c) Contrary to the Ninth Circuit's view, there is no reason to read 446(b)—which authorizes the IRS to use estimation methods for determining income tax liability—or 6205(a)(1)—which authorizes the Secretary to adopt regulations prescribing mechanisms for employers to adjust FICA tax liability—as limiting the IRS' authority to use an aggregate estimation method to compute in computing FICA tax liability. Pp. 245-246.

(d) Certain features of an aggregate estimate—that it includes tips that should not count in calculating FICA tax, e. g., tips amounting to less than $20 per month; and that a calculation based on credit card slips can overstate the aggregate amount because, e. g., cash-paying customers tend to leave a lower percentage tip—do not show that the method is so unreasonable as to violate the law. Absent Fior D'Italia's stipulation that it would not challenge the IRS calculation's accuracy, a taxpayer would be free and able to present evidence that the assessment is inaccurate in a particular case. Pp. 246-248.

(e) The fact that the employer is placed in an awkward position by the requirement that it pay taxes only on tips reported by its employees, even when it knows those reports are inaccurate, does not make aggregate estimation unlawful. Section 3121(q) makes clear that penalties will not attach and interest will not accrue unless the IRS actually demands the money and the restaurant refuses to pay the amount demanded in a timely fashion. Pp. 248-249.

(f) Finally, even assuming that an improper motive on the IRS' part could render unlawful its use of a statutorily permissible enforcement method in certain circumstances, Fior D'Italia has not shown that the IRS has acted illegally in this case. It has presented a general claim that the aggregate estimation method lends itself to abusive agency action. But agency action cannot be found unreasonable in all cases simply because of a general possibility of abuse, which exists in respect to many discretionary enforcement powers. Pp. 250-252.

242 F. 3d 844, reversed.

Breyer, J., delivered the opinion of the Court, in which Rehnquist, C. J., and Stevens, O'Connor, Kennedy, and Ginsburg, JJ., joined. Souter, J., filed a dissenting opinion, in which Scalia and Thomas, JJ., joined, post, p. 252.


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